Italy has recently introduced a GAAR in its tax system. While the wording of the clause is not original, considering the experience the other countries might have about it, it is the context in which the provision shall operate that arose the interest of the firs commentators. The article considers is particular the ways in which it will be arguably applied, taking into account the similar (although tailor-made) regulations that address the phenomenon, and that that have not been repealed by it. Treaty based, EU inspired, special law enacted clauses are still there and may potentially collide with the GAAR, making the overall outcome unpredictable for the Interpreter and for the taxpayer as well.

1. 1
Working paper
The Dawn of a General Anti Avoidance Rule:
the Italian Experience
Marco Greggi
December 30th
2015
Abstract: Italy has recently introduced a GAAR in its tax system. While the wording of the clause is not
original, considering the experience the other countries might have about it, it is the context in which the
provision shall operate that arose the interest of the firs commentators.
The article considers is particular the ways in which it will be arguably applied, taking into account the similar
(although tailor-made) regulations that address the phenomenon, and that that have not been repealed by
it. Treaty based, EU inspired, special law enacted clauses are still there and may potentially collide with the
GAAR, making the overall outcome unpredictable for the Interpreter and for the taxpayer as well.
Keywords: Income tax, avoidance, evasion, abuse of law, GAAR, complexity, taxation, tax policy, OECD, EU,
BEPS
Jel Classification: K340

2. 2
Working paper
The Dawn of a General Anti Avoidance Rule:
the Italian Experience
Marco Greggi, University of Ferrara
1. Preliminary considerations
On August 5th
2015, after a long wait, the Italian legislator actually passed the first modern General Anti
Avoidance Rule which will be applicable from 2015 in the peninsula1
. It is probably the first example in recent
history of Italian tax law of a provision of this kind, with such a broad potential application, and suitable to
be used either for income taxes and VAT purposes, but also for local duties and fees (actually, only Customs
duties are exclude from its application).
In this way, apparently, Italy is following the approach pursued by many other Countries in the European
Union2
and beyond3
, which are one after another drafting similar provisions in the attempt to escalate the
struggle against a common problem: tax avoidance.
Many authors4
observed that, at least in the EU, a lot is due to the Case-law of the European Court of Justice5
.
Almost a decade ago, it discovered within the legal system of the Union the Abuse of law doctrine6
and used
it in VAT application, in order to prevent aggressive tax planning schemes by fraudulent taxpayer. There are
countless contributes in Italian academic literature7
on this issue, and the mainstream doctrine keeps on
arguing on the advantages but also on the disadvantages of such an approach to VAT8
. Namely, amongst the
first there is the possibility to tackle a higher number of possible abusive behaviours by the taxpayers, but,
amongst the seconds, the intrinsic uncertainty bestowed on every and each business transaction must be
considered as well.
1
It has been introduced with the Legislative decree n. 128, which added article 10 bis “Discipline of the Abuse of law or
Tax Avoidance” to the law passed on July 27th
2000, n. 212 (Taxpayer’s Bill of rights). The first example of a
comprehensive (although not general) anti-avoidance provision in recent history of direct taxation law may be found,
in Italy, in Article 10 of the Act n° 408 passed on December 29th
1990.
2
de Monès, S. (2010). Abuse of tax law across Europe (part one). EC Tax Review, 19(2), 85 – 96; de Monès, S. (2010).
Abuse of tax law across Europe (part two). EC Tax Review, 19(3), 123 – 137.
3
Watters, A., & Ferguson, S. (2013). Tax avoidance in the modern world. Tax Planning International: European Tax
Service, 15(6), 7 – 11.
4
Gribnau, H. (2008). Soft Law and Taxation: EU and International Aspects. Legisprudence, 2(2), 67–117.
5
See ECJ case C-255/02 “Halifax” decided on February 21st
2006. Attardi, C. (2006). How the ECJ’s Halifax decision will
affect Italian taxpayers. Tax Notes International, 44(8), 613 – 614.
6
Greggi, M. (2008). Avoidance and abus de droit: The European Approach in Tax Law. eJournal of Tax Research, 6(1),
23.
7
Piantavigna, P. (2011). Abuso del diritto fiscale nell’ordinamento europeo. Turin: Giappichelli.
8
See in general Fuest, C., & Spengel, C. (2013). Profit shifting and “aggressive” tax planning by multinational firms: Issues
and options for reform. ZEW-Centre for …. Retrieved from
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2303676

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The development of an anti-abuse doctrine, which to some extent can be considered equivalent to a
statutory-based GARR for the effect on the taxpayers’ rights and duties, was facilitated in Europe due to the
lack of tailor-made (specific) anti-abuse provisions both in the Treaty ad in derivative legislation (regulations
and directives as well) till a very recent time9
.
Anti-abuse provisions were not considered a priority by policy makers and by the legislator in Brussels a few
decades ago. Consistently with subsidiarity principle, the EU left to the Member States the power to regulate
tax avoidance, contrasting tax planning schemes, with the only limitation of reasonableness and
proportionality of the ways and means chosen. This has been the case, for instance, of the “Parent subsidiary”
directive that, in its first draft in the nineties, allowed member States to use their own unilateral anti-abuse
provisions to limit the benefits of the Directive in qualified circumstances10
. The fight against avoidance didn’t
deserve a unitary approach by the Union, considering that anti-abuse provisions were not needed for the
development of the Common market since the autonomous pursue of a balance between freedom of
business and the need to regulate improper exercises of it (aimed at saving taxes only) could be achieved by
each State individually.
Clear evidence of this situation is found in the text of most of the directives released on direct taxation in the
EU.
Nearly all of them make reference to domestic anti-abuse provisions to regulate proper application of the
rights attributed, with the only consideration being to prevent the application of (unilateral) anti-abuse
regulations that would deprive the directive of the case of any actual implementation.
In other words, in the field of direct taxation, the only intervention was in a way to prevent the member
States from implementing excessive (namely, disproportionate) provisions in a way to frustrate the scope of
the directives. The only European intervention has been, therefore, against disproportionate anti-abuse
provisions.
In the field of VAT the situation was not different, with the only exception that neither in the pattern of the
now abolished VI Directive, nor in the 2006/112/EU recasted one on VAT11
a single reference was made to
avoidance and abuse of law.
This is the reason why when in 200612
the ECJ had to decide what now is considered the leading case in terms
of abuse of law in the EU, it had to do that making reference to overarching principles of the EU law13
,
allegedly implicit in the Treaty, and in the legal system of most of the Countries of the Union. It did that even
if, as a matter of fact, no such principle is (has been) actually considered by many States, including Italy by
that time.
It is possible, however, that the notion of abuse of law has been part of most of the European systems beyond
the field of taxation. The legal transplant that the Court of Justice did on the British context in that case would
9
See the recent Directive 2005/121/UE issued on January 27th
2015. Debelva, F., & Luts, J. (2015). European Union - The
General Anti-Abuse Rule of the Parent-Subsidiary Directive. European Taxation, 55(6), 223 – 234.
10
Article 1, paragraph 2 of the 1990/435/EEC directive ruled since the earlies version, that “This Directive shall not
preclude the application of domestic or agreement-based provisions required for the prevention of fraud or abuse”.
11
O’Brien, D. (2008). Anti-avoidance, abuse of law and VAT: where are we now? Irish Tax Review, 21(6), 40 – 44.
12
C-255/02 “Halifax” decided on February 21st 2006.
13
See in particular §§ 69 and 70 of Halifax. It’s noteworthy to observe that the Court consider the principle applicable
also to VAT (thus, not only to it).

4. 4
Working paper
have been more acceptable14
, considering that Taxation law is just a part of a more complex and fragmented
legal system, in which abuse of law may be regulated in a way similar to the abuse of right15
.
Even in the making of the European legal system the concept of abuse has been used in a number of contexts,
in a way to address situations in which the individual or the company exercises a right recognized by the
system in a way which is not consistent with the reason why the right has been granted.
In the Continental legal terminology these situations are deemed to constitute an infringement of the ratio
of the provision16
.
The very recent case of the EU market abuse discipline17
may be considered as an example in this way, even
if the situations it makes reference to is entirely disconnected from taxation law. In latter case the abuse
seems to be addressed to the law, and generates avoidance of a taxing provisions, while in the last mentioned
situation it appears that is it intended for a right exercised by individuals or by the company. The distinction
is probably more related to form than to substances. In tax law what is traditionally called “abuse of law” is
rather and improper exercise of a right (or a freedom) granted by the legal system (to some extent, it’s rather
an “abuse of right attributed to a taxpayer18
”). In most of the cases, the freedom abused of is the one to do
business (and in the Italian legal experience it is drafted in Article 41 of the Italian Constitution).
2. Understanding the Background to the Implementation of the
Provision
In recent history Italy has never experienced a GAAR, nor academic literature strongly advocated it in the
past19
, before the intervention by the European Court of Justice and the extension of it to direct taxes by the
Supreme Court20
.
The Italian tax system has always been fragmented and lacking of general, overarching, principles applicable
to the taxes as such: no common procedural rules, different compliance duties and an unclear statute of
limitation (as it changes according to the tax and to the phase of the audit activity by the Revenue service).
In this respect, taxation law has never been codified in the Italian legal experience, nor there are currently
sound proposals in this sense.
The lack of common, shared, rules applicable to different taxes determined, consequently, the impossibility
to address avoidance in the same way for direct taxes, VAT and local fees. It is true that the mainstream
14
In the Halifax case the Court of Justice observed that no specific provision of the Common law system could have
been suitable to deal with the abusive scheme of the case. For this reason the Judges in Luxembourg observed that a
general principle had to be found elsewhere, namely in the common legal traditions of the states belonging to the
Union.
15
In the Italian legal system, and in Civil law in particular, the exercise of some rights may be considered abusive (unfair)
in some circumstances, and therefore prohibited.
16
See the distinction at (§ 3.1.3) between Intentio operis and Intentio auctoris in Eco, U. (1990). I limiti
dell’interpretazione. Milan: Bompiani. Further reflections on the Civil law tradition and the meaning of it may be found
in Monateri, P. G. (2015). Understanding the Civil law Tradition. Paris. Retrieved from
https://www.academia.edu/s/a8d73ce499?source=link
17
Regulation 2014/596/EU approved on April 16th
2014.
18
In Halifax “abuse of law” and “abuse of right” are considered similar (if not entirely equivalent) in their content. See
§§ 37, 41, 62, 63 and 65.
19
Avi-Yonah, R., Sartori, N., & Omri, M. (2011). Global Perspectives on Income Taxation Law. New York: Oxford
University Press. See in particular pages 107 and 108 for the Italian situation.
20
Supreme Court cases n° 30055, 30056 and 30057 decided on December 23rd
2008.

5. 5
Working paper
academic literature in the country always criticized a general anti-avoidance rules, albeit for different
reasons21
.
The most similar provision to a GAAR ever enacted in Italy (till august 2015) and currently applicable was
Article 20 of the Registration tax act22
. In order to register contracts and deeds, a tax has to be paid, and it’s
calculated according to the specific agreement the parties reached, and to the obligations generated by it.
Obviously, the amount of it varies remarkably according to the legal qualification of the agreement. To
prevent possible abuses, or improper tax planning schemes, the Italian Registration tax has contained ever
since its implementation, a provision mirroring the “Substance over form” doctrine, which has been
developed in Common law system.
Italian statutory law rules that when a contract has to be registered, the tax is applied according to the legal
effects of it, without taking into consideration the name or the legal qualification of the agreement (the
nomen iuris). In this respect, therefore, taxation is completely detached from Civil law, and enjoy an
unprecedented margin of appreciation in the requalification of business operations and combinations.
In the past, Italian academics argued on the possibility to extend the application of Article 20 to other taxes,
namely income taxes and VAT23
. The argument in favour of this possible extension was that the principle of
“Substance over form” had to be considered as an implicit feature of the legal system as such, and the
provision of the case was just a clear application of a rule that would be anyway extensible to other taxes as
well.
Fascinating as it was, this sophisticated argument had always been maintained by a minority of scholars and
literally by no Court in the peninsula. The opposite (and dominant) interpretation was that Article 20 and the
principle of substance over form was introduced with a limited scope: namely, Registration tax. The need for
legal certainty and effective clarity of taxing rules in that historical prevented the analogic application of anti-
avoidance rules24
. It was also observed that a General anti avoidance rule as the one in force for Registration
tax would have been ineffective, since according to the experience in other field of the law, general clauses
may inspire interpretation, but rather can justify decision of the judges. An example may be found in the
general clause of Bona fides (good faith) in Civil law25
.
The Italian Civil code rules that contracts should be interpreted using Bona fides and that the parties in the
execution of them and in the negotiation should act consistently with this principle26
. There are, however,
no provisions regulating the breach of Bona fides principle and the consequences determined by such a
violations. In other words, the Bona fides as a general clause is actually effective only if taken in conjunction
with other, specific, provisions applicable to the contract of the case and the obligation generated by it, just
like many other interpretive provisions.
The same reasoning, to a certain extent was extended to taxation law: it was observed that a GAAR would
have enjoyed a sort of interpretatio abrogans by the judiciary, thus being deprived of any effect if this road
would have been taken.
21
For a summary of the various positions see Greggi, M. (2008). Avoidance and abus de droit: The European Approach
in Tax Law. eJournal of Tax Research, 6(1), 23.
22
Decree n° 131 released on April 26th
1986.
23
See more in general the considerations by Tesauro, F. (2013). Compendio di diritto tributario (5th ed.). Turin: UTET.
In particular see pages 139 and sub.
24
Tesauro, F. (2013). Compendio di diritto tributario (5th ed.). Turin: UTET at page 43 (the Author mainly address the
prohibition of analogy in taxation law from the perspective of substantive taxing provisions).
25
Se for instance Article 1375 of the Italian Civil code imposing good faith in the execution of the performances under
contract.
26
According to Article 1366 of the Italian Civil Code every contract must be interpreted in Good faith.

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Another remarkable tentative to use Civil law argument to enact an anti-avoidance rule has been attempted
in the past, using the Law on Contracts and the consequences derived from a violation of law.
In Italian Civil law, a contract to be valid must met specific requites regulated by the Civil Code27
or by specific
laws where applicable. Amongst these, it is necessary that the obligations assumed under it were not against
the law or public order28
. It has been argued that if the aim actually pursued by the parties, while entering a
specific contract or business, is to avoid taxes, then this behaviour may be considered against the law and
therefore the contract is null and deprived of any effect.
Obviously, the ultimate consequences would be that any tax avoidance scheme would frustrate the contract
as such, even under a Civil perspective. Most remarkably, this interpretation has been confirmed in the past
by a few cases of the Supreme Court29
.
Certainty and predictability have been, on the contrary, the main drivers that inspired the Italian anti-
avoidance rule applicable till august 2015. More to the point, the anti-avoidance rule drafted in Article 37 bis
Dpr 600/73 and applicable to income taxes (both for individuals and for corporations) was limited to the
situations listed in the law. It was, therefore, a sort of tailor made anti-avoidance rule, aimed at qualified
circumstances.
The situations falling outside the scope of it were not addressed, so far, by statutory law.
3. The legal system as one: specific features of the Italian system and
their influence on the new General Anti Avoidance Rule
Article 37 bis proved to be effective in a number of circumstances, but not in all of them. Any anti avoidance
policy addressing specific operations or business combinations becomes quickly outdated as the legal
engineering of business transaction and tax planning become more and more sophisticated.
Judiciary reacted to this situation using interpretive argument as much as possible (thus extending the scope
of the provisions to situation that were not directly considered by the law) and eventually moving to the
Abuse of law doctrine as set forth by the European Court of Justice for VAT purposes30
.
There is no clear influence of EU law on direct taxes, the latter falling outside the general scope of the Treaty
and may be regulated via directives only insofar this is the only way to grant the perfect functioning of the
Common market: a situation that was assessed only in a few circumstances in the past.
The Italian Supreme Court however considered that the abuse of law doctrine could have been extended also
to fields not directly covered by the ECJ using the general principle of the ability to pay.
In the Italian Constitution, Article 53 rules that every and each individual (precisely: anyone) has to contribute
to public expenses according to his or her ability to pay31
. The mainstream interpretation always considered
it a provision aimed at protecting the taxpayer for an excessive or anyway disproportionate taxation32
. On
27
Article 1325 of the Italian Civil code list the conditions to be matched by a Contract to be considered as valid and
legally binding under the law.
28
Articles 1343 and 1344 of the Italian Civil Code.
29
See for example the Supreme Court case n. 20398 decided on April 29th
2005 in which the Judges found a “Dividend
washing” scheme to be abusive of the law and declared the two sales of shares null under a Civil law perspective as
well.
30
C-255/02 “Halifax” decided on February 21st 2006.
31
Article 53, paragraph 1 of the Italian Constitutional Charter.
32
Tesauro, F. (2013). Compendio di diritto tributario (5th ed.). Turin: UTET, at page 13.

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the contrary, the Supreme Court observed that any tax-planning scheme without sound purposes but saving
taxes constitutes per se a violation of the constitutional principle and of the duty of solidarity inspiring the
fundamental charter: therefore, it may be disregarded by the Tax office during the audit procedure.
Ever since the day in which the leading cases mentioned above were published in 2008, Italian literature
warned the legislator and other stakeholders about the ultimate unpredictability of such a choice33
. The
possibility to read Article 53 of the Constitution in conjunction with the abuse of law doctrine, although
scientifically appropriate, would have increased the level of uncertainty of the tax system as it never
happened before, making business decisions remarkably uncertain and risky by the taxpayer.
It took however more than five years to the legislator to grant the Government the power to legislate on
that. Article 11 of the Act n° 23 (passed in 2014) set forth a general principle on which the forthcoming GAAR
had to be drafted. Most notably, the need was to strike a balance between the necessity to have a more
efficient and flexible tool targeting aggressive tax planning and the equal priority to preserve as much as
possible the legal certainty (also for tax purposes) of business decision.
Article 10 bis of Act n. 212 passed in 2000 (as amended in 2015) is the output of this conflict and just like any
other rule trying to allocate a balance between two opposite instances ended up with provoking the dismay
of the first Italian academics who delivered they opinion on the new provisions34
.
Ever since the opening formula of the new Italian GAAR, it appears clear that the case law played a crucial
role in orienting the text of it: apparently, the current text of the law is, to some extent, a copy-and-paste
taken from the most relevant decisions of the Supreme Court.
According to the new provision applicable from 2015, one or more business operations are deemed to be
abusive of law when they are deprived of any economic substance and, while formally consistent with tax
law and irrespectively from the intention of the taxpayer, they are aimed at obtaining undue tax advantages.
When these conditions are met, operations are deprived of any effects and the Tax office may disregard any
tax advantages derived by them, assessing the actual tax due applying rules and principles avoided, but taking
into account what the taxpayer already paid because of the abusive operations as well.
Right after this general definition, the law continues in clarifying some concepts used, including the notion
of “Economic substance” or “Undue tax advantages” and others used in the opening definition. As the Italian
legislator made the most of the previous experience of other European Countries, definitions used and their
extension is not different from the one present in other States35
.
This situation could be considered as a clear evidence of spontaneous convergence of taxation law on a global
scale, at least for what concerns the fight against tax avoidance and irrespective of the OECD inspired
recommendations on that.
33
M. Beghin, L’abuso del diritto, giustizia tributaria e certezza dei rapporti tra Fisco e contribuente, in Riv. dir. trib.,
2009, II, p. 408 and sub. In the international context see also R. Prebble, J. Prebble, Does the Use of General Anti-
Avoidance Rules to Combat Tax Avoidance Breach Principles of the Rule of Law – A Comparative Study, (2010-2011)
Saint Louis University School of Law Journal 55:21, pp. 22-46. See also Filipczyk, H. (2015). Why is tax Avoidance Immoral
? Ethics, Metaethics and Taxes. academia.edu. Warsaw. Retrieved from
https://www.academia.edu/9096703/WHY_IS_TAX_AVOIDANCE_IMMORAL_ETHICS_METAETHICS_AND_TAXES
34
Stevanato, D. (2015). Elusione fiscale e abuso delle forme giuridiche, anatomia di un equivoco. Diritto e Pratica
Tributaria, 90(5), 695 – 727.
35
See further references to the situation before the enactment of article 10 bis in the pages by N. Sartori in Avi-Yonah,
R., Sartori, N., & Omri, M. (2011). Global Perspectives on Income Taxation Law. New York: Oxford University Press.

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The convergence of definitions in the Italian case is, however, apparently even deeper, rooted as it is in the
foundations of the legal system. Italian legal system tends to convergence, as much as possible, in the use of
general concepts and categories.
Even if this trend has been somehow reduced, or even downturned, in the most recent years due to the
influence of special and erratic legislation and by the impact of EU law, traditional academic literature
strongly support the need to use the very same definitions of legal terms used whenever possible and insofar
the circumstances of the case allows it36
.
It is hard to trace back the reason for this convergence in the interpretation, but arguably it comes from the
necessity to build the whole system on the common foundations or Roman law and to diverge from that
system of values and of principles only wherever it is necessary. Even in current times Private law, for
instance, is commonly referred to as Ius commune (in Italian, diritto comune).
This derivative approach is particularly relevant in the field of taxation which, amongst the other field of law,
is the one that owe more to the Civil law and the other disciplines, even in this conclusion is criticized by
some authors37
.
There is therefore no surprise that, to a certain extent, the notion of abuse or lack of substance, implicitly
make the most of Italian Civil law where abuse is also known, and mentioned in the Civil Code both in cases
of Property and Contract law.
In case of Property law, abuse is used to limit the content of the right in a way that while it allows the owner
of a good to make use of it in the ways he or she likes, nonetheless this enjoyment must not be anyway
abusive so as to create nuisance to others in a way unreasonable or disproportionate38
.
In the case of Contract law, as mentioned before, the prohibition of abuse (or of avoidance) to the law is both
codified in the Bona fides clause39
as currently interpreted by mainstream doctrine40
and in the provisions
regulating sham contracts41
. In the two circumstances Civil code rules that while parties are free to regulate
their business in the way they find more consistent with their needs, such freedom can’t be exercised if one
(or the main) scope of it is to violate the rights or the legitimate expectations of third parties to the contract.
In this respect, Tax office is always considered as a third party to the contract if the agreement the two
taxpayers entered into has the purpose to unfairly minimise the tax burden.
Considering this background, and the fact that the Italian tax judiciary is mainly composed by part time judges
whose primary occupation is judging on Civil or Criminal cases42
, it becomes evident that a sort of
contamination between different legal systems may emerge.
The new Italian GAAR, based on the abuse of law doctrine, made the two definitions to converge. Apparently,
the legislator cut the Gordian knot Academia was not able to undo: the relation between abuse of law, and
tax avoidance. For some Authors being different phenomena, not necessarily overlapping to each other, now
36
Tesauro, F. (2013). Compendio di diritto tributario (5th ed.). Turin: UTET, see pages 44 and 45.
37
Most of the positions are summarised in Melis, G. (2003). L’interpretazione nel diritto tributario. Padua: CEDAM.
38
Article 833 Italian Civil Code.
39
See footnotes 26 and 27 above.
40
Falco, G. (2010). La buona fede e l’abuso del diritto. Principi, fattispecie e casistica. Milan: Giuffrè. At page 3 of the
book a vast bibliography is available on the most recent and authoritative contributes of the Italian Civil literature.
41
Article 1344 Italian Civil Code considers null and deprived of any legal effects those contracts which are not consistent
with the law.
42
Greggi, M., & Tassani, T. (2002). Reform of tax administration in continental Europe: the example of Italy. In Tax
Administration Conference (pp. 1–15). Sydney: ATAX.

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they are considered exactly the same by the law in force, and have to be treated in the same way both for
substantive and procedural aspects.
While for the first one differences have never been remarkable, for what concerns the seconds judiciary
always insisted on the necessity of a preliminary audit of the taxpayer before the application of any anti
abuse provision. This condition was made clear by Article 37 bis, mentioned above, and now repealed.
According to the former system in force till 2015 it was necessary for the Tax office to warn the taxpayer
about the possible application of an anti-abuse regulation to one (or more) of his business combinations or
transaction enacted in the past, and to clarify in details the reasons why that operation was considered
abusive. After this formal preliminary statement, the taxpayer had the right to answer to the observations of
the Tax office, arguing in favour of his decision and trying to convince the Tax inspectors about the fact that
the business purpose was clear and evident.
The law required therefore a sort of due procedure of law before any possible application of a specific
provision like the one enshrined in Article 37 bis.
This necessity was not considered as a sort of pure formality, since the validity of the reassessment as a whole
would depend of the reasons given due in the framework of the procedure: in other words, the validity (or
not) of the reassessment issued by the Tax office depended on the motivations given considering the
objections by the taxpayer. Failing to provide accurate answers to the observations raised by the taxpayer
would have undermined the validity of the reassessment as such.
Academia qualified this condition of as a sort of “Enhanced motivation43
” test to be passed if the Tax office
wanted to apply the anti-abuse provision to the circumstances of the case.
The current provision confirms this necessity, and in particular the duty by the Tax office to provide
extraordinary motivations why the business transactions of the case are considered abusive. More than that,
the abuse should be regarded as a primary target of the reassessment, while the amount of tax to be paid
should be calculated with a separate decision by the Tax office.
While there’s no room here to go into details of the decision by the Italian legislator, one point apparently
emerges like a sort of constant feature of the Italian way of dealing with anti-avoidance provisions or with
GAAR (from now on): namely, the necessity to condition its possible application to strict procedural rules.
Adversarial procedure, right of being heard, possibility to interact with the Tax office since the earliest stage
of the reassessment are the qualifying element of the Italian way to apply the GAAR.
Literature insisted on this point and has been supported, until very recent time, by the mainstream case
law44
. Only in a very recent moment (December 201545
) the Supreme Court argued that adversarial
procedure, although recommended by the ECJ in some decisions46
, is not a fundamental pillar of the Italian
tax system. Violations of it in situations where it is not made compulsory to abide to, do not necessarily lead
to invalidity of the reassessment or to the liability of the Tax office.
Considering the short time passed so far from the publication of the leading case, it is still too early to assess
the possible consequences of it on the GAAR actual application: apparently it could be argued that the
43
See the former article 37 bis (now repealed) as drafted in the Decree n° 600 issued on
44
Supreme Court Case n. 19667 decided on September 18th
2014
45
Supreme Court Case n. 24823 decided on December 9th
2015.
46
ECJ C-129/13 and C-130/13 “Kamino” and “Datema” decided on July 3rd
2014. Greggi, M. (2009). Due Procedure
Clause (Derecho a Un Procedimiento Justo) Under European Tax Law (No. 7). Ferrara. Retrieved from
https://www.academia.edu/1321254/Due_Procedure_Clause_Derecho_a_Un_Procedimiento_Justo_Under_European
_Tax_Law.

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Decision of the Supreme Court is not applicable to GAAR since here the adversarial procedure is imposed by
the law. It is clear however that the downgrading of the due procedure clause to a bit more that a
recommendation without any remarkable consequence in case of violations will ease the application of the
GAAR, possibly making any defence by the taxpayer even weaker at least on an interpretive level.
4. GAAR and the Others: making the modern GAAR cope with Tailor
made anti-abuse Provisions (the case of LoBs)
The implementation of the new GAAR determined a sort of legal Tsunami of the other provisions of similar
nature that were present in the Italian Tax law.
Most of them were submerged, including those applicable to VAT and Income taxation, together with the
interpretive doctrine of the abuse of (tax) law, that now may be considered as incorporated in Article 10 bis.
Some other were left untouched due to specific provisions in that sense of the new law47
: it is the case of
Custom duties, that still are considered as a part of a different system in Italy and in the other countries of
the Union.
Some others partially survived, due to their very specific nature. It’s the case for Article 20 of the Registration
tax mentioned above, which is interpreted a broader provision with some substantive features, making it
different from a pure anti abuse rule (and besides this, it is not literally repealed by the new Article 10 bis of
the Act n° 212 passed in 2000 as amdnded in 2015). Some other just could not be addressed by the new
GAAR and by the law enacting it. It is the case of the Anti-abuse rules and Limitation on Benefit Clauses (LoBs)
included in Tax treaties in general, and in double taxation conventions in particular. It is also the case of the
very recently introduced anti-abuse provision in the “Parent - Subsidiary” Directive48
, which is to some extent
the first attempt made by the EU to draft such a provision after some recommendations making part of the
European soft law49
.
In the past, most of the anti-abuse provisions enacted in Europe were either based on the judge-made law
(such as in the case of VAT) or alternatively connected to the beneficial ownership status just like in the case
of directives related to passive income, including “Interest and Royalties50
” and “Parent - Subsidiary51
” ones.
As it was mentioned at § 1 above, the EU never took a specific attention to the issue of avoidance and evasion
in precedent decades.
It is probably due to the efforts made by the OECD in this sense52
that the EU insisted on the necessity to
have a more comprehensive tool made available to domestic legislators to tackle abusive situations, since
domestic (unilateral) provisions in the past didn’t demonstrate to be the best solution. The “Transparency
package” also proved to be effective in creating the background conditions for this proposal to be passed by
the European Council53
.
47
Article 10 bis, paragraph 1, Act n. 212/00.
48
Directive 2005/121/EU, issued on January 27th 2015.
49
Communication of the European Commission COM(2015) 302 final, released on June 17th
2015.
50
Directive 2003/49/EC.
51
Directive 2011/96/EU.
52
OECD. (2013). Action Plan on base Erosion and Profit Shifting. Paris. Retrieved from www.oecd.org.
53
On October 6th
2015 the European Council reached a political consensus on the need to improve transparency on
ruling procedures for tax purposes. On that occasion a Proposal for a Council Directive amending Directive 2011/16/EU
as regards mandatory automatic exchange of information in the field of taxation has been delivered (2015/0068 (CNS)).

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The Cadbury Schweppes case54
is another clear example of this unilateral inefficiency, with a domestic anti
abuse provision (actually, a CFC regulation) found to be inconsistent with UE law and precisely with the
Freedom of establishment.
Only in very recently times European statutory law ( a Directive) has been introduce to minimise the risks of
avoidance and abuse. Council Directive 2015/121/EU amending the “Parent Subsidiary” one rules (Article 1)
that:
“Member States shall not grant the benefits of this Directive to an arrangement or a series of arrangements
which, having been put into place for the main purpose or one of the main purposes of obtaining a tax
advantage that defeats the object or purpose of this Directive, are not genuine having regard to all relevant
facts and circumstances”.
Besides this, the Directive leaves room for member States to maintain in force their own unilateral domestic
provisions where necessary and consistently with the principles of subsidiarity and proportionality.
Italian GAAR is no doubt an example of unilateral provision of the kind mentioned above by Article 1,
paragraph 4 just like anti-abuse provisions enshrined in the Treaties Italy entered into with a similar scope.
The European provision is, of course, applicable only to cross border flows of dividends falling into the scope
of it: it is therefore suitable of a narrow application. However in specific cases a business transaction (intra
EU distribution of dividends falling into a “Dividend washing” scheme) could potentially trigger three different
anti-abuse provisions at the same time: the domestic one, the directive’s and the Treaty-based. Of course
this situation of overlapping is purely theoretical since the European directive need to be implemented (and
when it is, it becomes part of the domestic system) and besides that it contains a clear reference to the other
possible law making reference to anti-abuse regulations, but besides this practical issues could emerge
anyway.
First of all, no procedural rules are mentioned in the Directive as they are in domestic law.
It was clarified in the former paragraph that in order to use the GAAR in any audit procedure the Tax office
has to activate a special (and in some respect, cumbersome) procedure. It has to issue two separate audit
statement the first one being only aimed at explaining why in the business transaction of the case some
abusive element may be detected, while in the second the Office draw the conclusions reached in the first
statement, and increase the taxpayer’s tax liability.
Before than that, a special procedure must be enacted, with the tax Office inviting taxpayer to give the
reasons of his or her choice and then, after that, with the duty to reply, in details to the observations of the
taxpayer. Failing to do so deprives the reassessment of legal validity and makes it challengeable in front of a
Court.
Even if it’s not clear whether this is a unique feature in a comparative perspective, there is no doubt on the
fact that the Italian way to address uncertainties related to the application of the GAAR is based on the
adversarial procedure. It is essentially grounded on the possibility for the taxpayer to provide the reasons for
his or her choices, and on the duty for the Tax office to answer in details to the observations before taking
the final decision.
This exchange of view is not clarified further in details, but in the past the Italian Tax judiciary was very strict
in assessing whether in the circumstances of the case it has been respected or not55
. Any lack in terms of due
54
C-196/04 “Cadbury Schweppes” decided on September 12th
2006.
55
Supreme Court n° 11088 decided on May 28th
2015.

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procedure clauses in the application of such a provision was sanctioned with the assessment, being declared
null and deprived of any legal effect.
With the enactment of the GAAR such strict consequences were confirmed entirely, emphasising the
importance of the adversarial procedure when such a weapon is used by the Tax office. On the contrary, it
was also observed that the Italian Supreme Court, in a very recent and important decision56
, observed that
the due procedure clause (even if imposed by the ECJ in deciding cases relevant for the application of EU law)
can not be considered as a general principle of the Italian legal system. Not every and each infringement of
that principle lead to the invalidity of the final decision by the Tax Office, being necessary to decide on a case
by case basis.
It appears that in the current moment, fundamental rights of the taxpayer during the audit procedure are
experiencing hard times, in particular for what concern their actual protection in front of the judge and the
necessity for the Tax office to behave consistently with them, including the right to privacy, of being heard
and so on.
This overall situation is, of course, of paramount importance in the Italian application of the GAAR, since the
delicate balance between an unrestrained implementation of it and taxpayer’s right is based on evidence and
adversarial procedure and is protected by statutory law, in this case.
In other words, while adversarial procedure is no longer considered a general principle applicable to tax
audits according to the most recent case law of the Supreme Court, and any violations of it do not necessarily
entails invalidity of the decision of the Tax office, it must necessarily be respected when the Tax Office make
use of the GAAR.
Understanding the legal provision used by the Office in the specific case become therefore a factor of
paramount importance for the taxpayer and the Office in the use of the GAAR must be ready and in the
position to answer in details to the observation of the taxpayer under inspection.
It is for this reason that the possible conflict between the domestic provisions and the EU law or the
International LoBs is crucial. In the European discipline57
(yet to be enacted in most of the European States)
no procedural dimension is envisaged nor qualified rights are attributed to the taxpayer. The implementation
as it is of the EU law would possibly bring, therefore, to the frustration of the guarantees decided by the
Italian legislator.
Apparently, the domestic legislation did not (entirely) considered the European development on GAAR when
it drafted the domestic one, and it did not considered in any respect the needs for coordination of the former
with the latter.
Similarly, it completely disregarded the existence of specific, although very comprehensive, provisions that
are drafted in some double taxation conventions. For example, the double taxation convention between Italy
and the Republic of San Marino58
(a comparatively small State but strongly embedded with the Italian
economy) has a very broad GAAR applicable to all the business transactions between the two Countries and
falling within the scope of the Treaty: the same goes for the Treaty between Italy and Israel (Article 30).
In a theoretical perspective, domestic GAAR should be overridden by the Treaty one in the cases in which the
second is applicable. The same conclusion should be reached in each case in which the “Parent - Subsidiary”
56
See footnote 46.
57
Greggi, M. (Ed.). (2011). Limitation on Benefit Clauses in International Taxation Law. Ferrara: University of Ferrara.
58
The treaty has been ratified with Act n° 88 passed on July 19th
2013.

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directive is applicable, including perhaps third Countries (such as Switzerland) to whom the Directive is
extended via bilateral agreements the EU negotiated59
.
In all these situations, the procedural guarantees mentioned above (adversarial procedure, right to being
heard, etc.) are not imposed, and the Tax office could possibly proceed without any specific interaction with
the taxpayer.
It is true, on one side, that the European rules allow member States to apply their own (thus, unilateral)
provisions in order to tackle avoidance, and in the Italian case Article 10 bis could be one of these. It is also
true however that the specific (and to some extent, cumbersome) conditions according to which this is
possible, can be incompatible with EU law, in terms of reasonableness and proportionality. This appears to
be true in particular for what concerns the act of reassessment and the consequences (its invalidity) derived
from the lack of communication with the taxpayer, and the failure to provide a specific answer to the
observation he or she raised.
5. Concluding Remarks: GAAR in the Age of Complexity and the need
for an Interpretive Convergence
The new Italian GAAR is, in many respects, similar to the ones already applied in other European countries,
and arguably all around the world. The words used by the legislator, making reference to the “improper use
of legal structures” or “improper tax advantages” leading to some “reduction of the overall tax liability” that
“would not otherwise been achieved” are frequent ways in which others draft such provisions as well.
Apparently, the Italian Government and the Experts Committee appointed to draft it made the most of the
experiences abroad, writing a text that is hard to distinguish from others for the words used and the concepts
conveyed.
The context in which the rule is placed however, and more precisely its interaction with other similar (in
purpose) provisions, together with the influence of the judge-made law and of the supra national sources
will arguably made its application unpredictable, and potentially disrupting for the Italian business and for
the foreign entities investing in the Country.
Interpreters and practitioners today have to deal with an entangled system of legal regulations and a
complicated way to apply them. The complexity derives from the plurality of the sources of law, while the
complication stems from the technical ways in which the provisions as such must be applied (including the
necessity to get rid of a way of thinking – forma mentis – judiciary shaped in the past).
The decision to insert it the taxpayer’s Bill of right is apparently a paradox, but is consistent with the ratio to
make it applicable on a global scale in the domestic system. There is still confusion from the decision to
allocate the most powerful instrument made available to the Tax office in the body of a law, whose primary
(and till today, exclusive) purpose was to set a list of fundamental rights of the taxpayer. On the other side,
considering the specific features of the Italian tax system (namely the lack of any codification and the extreme
fragmentation of it), taxpayer’s bill of right is the only law that is considered both by literature and by the
judiciary as applicable to any tax or fee currently in force in the peninsula.
The debate on the GAAR raged for decades in the Country, both in academic halls and in practitioners’
chambers and Courts.
59
The agreement has been signed on May 27th
2015.

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The arguments brought, the pros and cons, criticism and praises, are, to many extent, similar to the ones
used in other jurisdictions. The historical moment in which Italy decided to switch to a GAAR is unique
however, considering what is happening on the global scale60
and the debate currently running in the EU61
.
The second decade of this century is no doubt the age of complexity for what concerns, specifically, the anti-
abuse rules’ application and implementation.
In a few years we had: (1) a new way to draft LoB in Italian tax Treaties (or at least in some of them)62
; (2) a
new European provision affecting qualified passive income63
; (3) new European recommendations on how
to deal with avoidance and abuse of law64
; (4) the huge debate at OECD level that originated BEPS report, a
kind of soft law, which is highly considered by the Italian judiciary65
; (5) the development of the abuse of law
by the European Court of justice66
; (6) its reinterpretation (with a possible extension to other taxes not
considered by the ECJ) by the domestic Court67
; and, finally,(7) the GAAR68
.
In the case of GAAR application mentioned at (7) above, the Tax office has to: (7a) warn the taxpayer; (7b)
issue a separate opinion on the reasons why it considers the business of the case abusive; (7c) ask and wait
for feedback in a reasonable time; (7e) consider (and possibly reply) to the feedbacks, beginning some sort
of exchange of positions and consideration; and finally (7f) issue a reassessment if the remarks raised by
taxpayer are unconvincing.
Even to a quick, superficial reading of the new provision in the context of the system, it is possible to mention
seven rules (including hard and soft law) dealing now with avoidance, and some six formal steps to have a
legitimate application of the GAAR to the circumstances of the case.
The overall picture that might emerge from the comparison of the Italian situation to the one of the other
States is therefore not entirely satisfactory in terms of accessibility of the provision, clearness of it
predictability of its actual implementation by the Tax office. The costs that will emerge from that are yet to
be discovered and calculated, but they won’t be cheap for the business. On the other side, it is mentionable
that the new Article 10 bis makes clear that no criminal charge may derive from the application of the GAAR69
.
Apparently, this provision would be redundant and not necessary in many foreign jurisdictions, including
perhaps the Common law system, since avoidance is not evasion70
and most of the cases related to avoidance
60
Van Brederode, R. F. W. (2014). A normative evaluation of tax law enforcement : legislative and political responses to
tax avoidance and evasion. Intertax, 42(12), 764 – 783.
61
Tavares, R. J. S., & Bogenschneider, B. N. (2015). The new de minimis anti-abuse rule in the Parent-Subsidiary Directive:
validating EU tax competition and corporate tax avoidance? Intertax, 43(8-9), 484 – 494.
62
See footnote 59 above.
63
See footnote 9 above.
64
Communication of the European Commission COM(2015) 302 final, released on June 17th
2015.
65
OECD. (2013). Action Plan on base Erosion and Profit Shifting. Paris. Retrieved from www.oecd.org. Evidence of the
OECD’s influence on the Italian Judiciary may be found in Greggi, M. (2008). The Concept of “Permanent Establishment
of a Group of Companies” in a Recent Case of the Italian Supreme Court (Corte di Cassazione). SSRN Electronic Journal.
http://doi.org/10.2139/ssrn.1321799. More in general, Devereux, M. P., & Vella, J. (2014). Are We Heading Towards a
Corporate Tax System Fit for the 21st Century? (No. 88). Retrieved from http://papers.ssrn.com/abstract=2532933
66
ECJ case C-255/02 “Halifax” decided on February 21st
2006.
67
See footnote 20.
68
Article 10 bis Act n° 212 passed in 2000 as amended by Legislative decree n° 128 passed in 2015.
69
Article 10 bis, paragraph 13.
70
Greggi, M. (2008). Avoidance and abus de droit: The European Approach in Tax Law. eJournal of Tax Research, 6(1),
23. Zalazinski, A. (2007). Proportionality of Anti-Avoidance and Anti-Abuse Measures in the ECJ Direct Tax Case Law.
Intertax, 35(5), 310–321. Retrieved from http://www.kluwerlawonline.com/abstract.php?id=TAXI2007035

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are not connected with criminal charges. This was not the Italian situation, in which in the past a number of
cases considering avoidance as a criminal offence were brought to Criminal Courts71
.
If one good point has to be found in the GAAR reform, therefore, it’s the bold statement according to which
Criminal sanctions should be used only in serious situations, in which fraud or forgery of document are
concerned, and not in many others in which an higher tax due could be justified on alternative interpretation
of taxing rules.
For the very same reasons it is almost impossible, in the current situation, to forecast what the actual
implementation of Article 10 bis will be, and whether a similar interpretation will emerge during the
application of the various anti abuse rules (either general or with a specific purpose).
In the short run, it’s very likely that a unique approach will be followed, possibly inspired by the basic
statements of the past, since even before the statutory provision Italian Courts were used to apply their own
clause connected directly with article 53 of the Constitution.
The real challenge will be to address avoidance in the same perspective all across the old Continent, and at
least within the EU. Despite the (slightly) different wording, every and each state of the Union now has it own
clause dealing with avoidance.
It will be necessary by the different judges to adopt the same approach in terms of potentially abusive
operations, such as it happened in the past, with “Dividend washing” or “Coupon stripping” operations.
Different approaches by different national judges (who may consider these operation abusive in one country
but not in another) would ultimately frustrate the need for convergence in the application if the principle, as
recently urged by the Commission. In the long run, potentially, this would impair the common market itself,
facilitating investments in countries more relaxed while dealing with avoidance and therefore jeopardizing
both the principle of fairness the Code of conduct72
, fair competition between States and the free movement
of capitals at least.
71
Supreme Court case n° 7739 decided on February 28th
2012.
72
Bratton, W. W.; McCahery. J. A. (2001). Tax Coordination and Tax Competition in the European Union: Evaluating the
Code of Conduct on Business Taxation. Common Market Law Review, 38(3), 677–718.